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1 SERIES ON TECHNOLOGY MANAGEMENT - VOL. 3
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FROM KNOWLEDGE MANAGEME T TO STRATEGIC COMPETENCE路
Chapter 8
Are There Any Competencies Out There? Identifying and Using Technical Competencies
MEASURING TECHNOLOGICAL, MA.RKET AND ORGANISATIONAL INNOVATION DOROTHY GRlFFITHS and MAX BOISOT
EDITOR
JOE TIDD SPRU. University of Sussex, UK
rrhe n1anagen1~nt of knowledge is iincreasingly being recognised as 1.. one of the major challenges facing the finn today. This challenge is not simply about the volume of knowledge which the modern firm must manage, but it is also about its nature, for knowledge is, ever more centrally, a source of competitive advantage in the global business environment. This chapter will describe a model and a methodology which the authors have developed to assist companies on one aspect of this critical task: the identification, development and use of techno 10 gically- based knowledge assets or competencies. Vve begin by exploring the concept of competence and explain how we have interpreted it. We review some of the literature on identifying and measuring competencies. 'l{e then describe a 1110del developed by one of the authors (Boisot; 199.4) and discuss its relevance to the exploration of competencies. '. Following this, we describe a methodology 'which we have been developing to apply Boisor's model to the. exploration of knowlcdge-bascd-assetsWe conclude with S0111e examples of its use as well as some les~o'~i~~t , ; "',:f\:"'"
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The Resource-Based View of the Firm - Traditional approaches to strategy have focussed on the analysis of products and markets as the, key to competitiveness and successful performance. Strategic thinking and strategic analysis have evaluated competitor activities, market positioning, process costs, product life cycles, product differentiation and so on. The focus has been -on how companies position themselves in relation to products, markets and competitors. The most well-known exponent of this approach is M. Porter. In Competitive Strategy (1980), he focussed on industrial s~ucture and competitive positioning within industries. In it, he developed his by now famous - Five Forces model for analysing'competition within an industry: the power of suppliers; the power of buyers; the threat of substitutes; the threat of new entrants and the extent of the rivalry among existing firms. Firms could use this framework to understand their own position in their industry. Porter then went on to analyse a number of generic strategies, focussed on either cost or differentiation, which firms could adopt. In his 1985 book, Competitive Advantage, he introduced the concepts of the value chain and value chain analysis as a means for 'a company to -understand and to 'ensure that it adds value at every stage of its processes. Much strategic analysis - albeit using a variety of models -'- has focussed on the issues of cost," quality and product/market. This traditional approach to strategy dominated strategic thinking, analysis and activity from the 1960s to the .1980s and remains influential. For example, it provides the framework for most strategy courses in business schools. But the rise of global markets and of the global companies which serve them, together with an intensification of competition, deregulation and the rapid pace of technological change so characteristic ofthe end ofthe twentieth century, have posed a number ofpuzzles for this traditional approach For example, how does it explain a company like Canon which has managed to both move into and succeed in diversified markets? Rumelt (1984), through analysing diversification strategies, showed that of the .nine potential strategies, the two which were most successful were those which built on an
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existing skill or resource base within the firm. Similarly, how does the traditional approach explain the significance of strategic asset stocks as opposed to flows? Dierickx and Cool (1989) for example, argued that while flows can be rapidly adjusted, stocks - representing as they do the accumulated flow of assets over a period of time - take longer to adjust. A traditional "portfolio" approach would tend to compare asset flows and ignore the potential significance of asset stocks. Yet, a new technology is likely to represent the flow of R&D (and other) resources over a number of years: an asset stock. Rumelt (1994} has further argued that the pressure for diversity, together with the toolkit of the traditional approach, has pushed responsibility further and further down diversified organisations. While this has produced what he calls ac1arity of vision on products and profits, this vision has come at a cost: the ability to _coor~~!~_.~~Q~~. ~~!!2p':§_~ .. regions, products and times which, is '~t the heart of strategic advantage". C There has, however, long-been-'an:'-iaditional-'alternative perspective available to strategists and strategy scholars which can address these puzzles. This approach has, as its central theme, the view that firmspecific activities can, also be a source of competitive advantage. Not surprisingly, this resource-based approach has been attracting increasing attention in recent years. Prahalad and Hamel (1990) have characterised the differences between the traditional and resource- based views as being between a "portfolio of competencies versus a portfolio of businesses". More dramatically,Stalk etal. (1992) have contrasted a "war ofpositions " with a "war of movement". The origins of the resource-based approach can be traced in different ways -:.. to Selznick and to 'Penrose. In 1957, Selznick described the importance of "distinctive competencies" to the competitive success of firms. Penrose (1968), focussing on the growth of firms, emphasised the importance of considering resources from a broader perspective. She argued that it was not sufficient to just simply consider resources in and of themselves. It was also important to consider what they actually 'contributed to the organisation. Firm uniqgt;p.~§.~fQ.u9W§_jiom~ a.._________--.·-.:c.._... particular configuration an<L1!.WisatiQn_Q(reso~ces.~_Later, Wernerfelt _.__ d
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· Are There Any Competencies Out There? Identifying...
(1984) continued the theme (and probably coin~d the term the "resource-based view of the firm") in a paper in which he identified a whole range of resources which might, potentially, be available to a firm as a source of advantage. Among them, he included brand names, in-house knowledge of technology, the employment of skilled personnel, efficient procedures and capitaL He also raised the question of strategies to develop new capabilities. At the heart of the resourcebasedapproach_.is J~~Q.gPitiJ)n-- that fums.__within....an.jndus1iy_ar:e~ heterogenous {~~!!~y,. 1991). There is as yet no agreement on what aspects of firm behaviour confer advantage. Different commentators have focussed on different factors. Bogaert et al. (1994) have reviewed some of the concepts used in the resource-based approach to strategic analysis. They begin with Wernerfelt and his concept of "resources" and subsequent emphasis on the analysis of "resource position .barriers" . Itami (1987) focussed on "invisible assets", which are often information-based resources. Barney discussed "firm resources", all the "assets, capabilities, processes, attributes, information and .knowledge controlled by a firm". Grant (1991) distinguished between "resources" "inputs to the production process" and "capabilities" "the capacity to perform some task". Hill focussed on the importance of "intangible resources": "know-how" as opposed to "know what". Amit and Schoemaker (1993) discussed three key concepts of "resources", "capabilities" and "strategic assets". And, most famously? Pr~alaci and Hamel (!~90) introduced tl:1e..~9gcept of "core competence", in which competencies.are_"thecollecdv.:e-leaiDiD. of the organisation". . ' - . The' concept of capabilities is sometimes distinguished from that of competence. "Capabilities" tend to be used to describe more broadly-based business processes than "competence". Capabilities refer to the ability of a firm .q~<?<!~plQY-!~~.9urces, while comi;~tence isme.d to describe the resources themselves. Tee~e ~t a[·TI~J92r·aaaea·t11;e·" further dimension of "dynamic capabilities' to refer to capabilities which enable the firm to create new products and processes and to respond to changing market circumstances.
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Henderson and Cockburn (1995) summarised tins distinction as being between what they describe as "component" competencies and "architectural" competencies. The former refer to knowledge and skills and the latter, to their use.
The Concept of Core Competence
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The most well-known and widely discussed vision of competence is that by Gary Hamel and C.I<. Prahalad (1990). Their ideas serve as a referent for many in the field, including the present authors. Hence, it is worth describing their vision in more detail. In 1994, Hamel outlined their "working definition" of core competence as follows. First a core competence is an integ11'ation of skills and technologies. He argued that a core' competence is unlikely to exist in a single skill or an individual team. Rather, they exist,at an aggregate level: typically in the order of five to 15 in any large firm. Second, a core competence is a product of learning in the sense that it incorporates both tacit and explicit knowledge. Core competencies are, therefore, not assets in the usual accounting sense of the word. Third, core competencies' deliver a fundamental customer benefit. Fourth, a core competence has longevity: they are sustainable because they are difficult to imitate. And fifth, core competencies must enable access to new markets through their incorporation into a range of the firm's products and services. Prahaled and Hamel are, ofcourse, not alone in stressing the importance of tacit knowledge to competitive advantage. Nonaka and Takeuchi (1995) criticise western management for its neglect of tacit knowledge in preference to explicit knowledge. Japanese success, in their view; follows from the capacity within Japanese companies to access and convert tacit knowledge into explicit knowledge (a point to which we shall return). Perhaps it is no coincidence that so many of Prahalad and Hamel's examples are drawn from Japanese firms. According to Penrose (1959), companies grow in the direction set by their capabilities and these slowly expand and change. There is now
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a considerable literature, particularly in relation to technology, on the importance of learning and the consequent path dependency and cumulative nature of technological knowledge within firms (see for example, Nelson & Winter, 1977; Dosi, 1982; Teece & Pisano, 1994). What these authors demonstrate is the unique, firm-specific way in which firms approach technological development and use. Similarly Leonard-Barton (1992) and Teece et al. (1992) both stressed the significance of tacit knowledge within a firm as a source of advantage. In a related vein, Senge (1990) and others work on the "learning organisation", addresses the capture and use of tacit knowledge and experience. Thus, as Dierickx and Cool (1989) argue, stratcgic.asseta, are built up over time. Their development is tied closely to a firm, ~ts history, prior learning and investment and development activities, ill a way which defies imitation and is non-tradable. Would be imitators are thwarted by the difficulty of discovering and re-enacting another firm's development trajectory. Core competencies can, thus, be summarised, as firm-specific, generic, sustainable skills and knowledge which are a product of learning. Hence they incorporate both tacit and explicit elements and offer some kind of value- based functionality to the customer. Core competencies are not, of course, all of the same type. Hamel land Prahalad (1994) distinguish three types: mar~~!._~<:fess.,_integrity足 related dand functionally-related. Market access competencies bring the firm into contact with customers; integrity-related competencies enabl~ the firm to do things better/faster than its competitors; and functionally-related competencies confer distinctive - as opposed to incremental-customer benefits. They contend that the latter are becoming relatively more important for competitive success: This is because consolidation builds global businesses and all companies move to uniformly high standards of quality and service. . The resource-based approach to strategy, thus, offers firms a different framework to think about competitive positioning. In doing so, it raises. a number of critical questions relating to the identification, development and management of core competence to which we now turn.
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Identifying Core Competencies At one level, the identification of competence appears to pose few difficulties. There are many cases which refer, for example, to the core competence of Honda in engines or Sony in minituarisation, and which explore why and how these firms have developed and maintain these competencies. But for core competence to be a tool of strategic analysis, what is also required is a means for-firms to analyse, rigorously, their own and" their competitors' competencies. One problem with this is that of causal ambiguity '(Barney, 1991; Collis & Montgomery, 1995). Some commentators have argued that some sources of competitive advantage are so complex that the firm itself-let alone its competitors - does not understand them (Lippman and Rumelt, 1982). Led by Prahalad and Hamel, a number of commentators on competence have developed what Knott et at. (1996) have described as the hierarchical model ofcompetence. Influenced, they and others (Miyazaki, 1994) suggest, by Giger's (1984) concept of a technological bonsai, a hierarchical model of competencies has been produced in which knowledge and skills are integrated into competencies. These are incorporated into a variety of core products. which serve a variety of strategic business units and their markets. Knott and his colleagues, in attempting to use this model empirically, criticised it on a number of grounds. First, they found examples which did not conform to the hierarchy. For example, they found end products based on individual skills and some servicebased competencies which could be delivered directly to customers. Second, they found a blurring between skills and competencies which suggested that the later could not be expressed "simply in terms of skills. Third, they found that they had to broaden the concept of core products to include core technologies. Finally, they found it difficult to consider competencies in isolation from other organisational factors and the linkages between them. Based on these problems, they proposed a holistic model of competence which "shows competence as an attribute of organisation' influenced by the external environment,
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organisational factors, and individuals, that delivers output of value .... competence is not a subset ofthe organisation, but a holistic, common property of it" 1996: 499, (original emphasis). Knott (1997) has since gone on to try to develop and use this holistic approach. As yet, it remains at the developmental stage. A number of academics have sought to identify core competencies by testing their characteristics against a set of empirical indicators. Barney (1991), for example, argues that for a firm resource to offer the potential of sustained competitive advantage, it must exhibit four attributes; value, rarity, imitability and sustainability.. It must be valuable in the sense that it exploits opportunities and/or neutralises threats ina firm's environment; it must be rare among a firm's current and potential competition; it must be imperfectly imitable, and there' cannot be strategically equivalent substitutes for 'it. Similarly, Klavans (1994) distinguishes two trends in the core competence literature which he describes as the technological and the ~tutional. The technological view, which he beli~ves owes its origins to Schumpeter (1984) and Penrose (1959), treats core competencies as "objective capabilities". The focus is on the ability of the firm to "create" (innovate) and then "capture" (own/control) scientific and technological knowledge. Such core competencies lend themselves, he argues, to objective measurement via various bibliometric techniques. The institutional view, rooted in Selznick (1957) and, more recently, .Prahalad and Hamel (1990), focusses on the socio-political factors which influence the firm's definition of what it is and are amenable to identification through psycholinguistic techniques. They can be acessed through strategic language statements which can be interpreted es rev~aling th: firm's !mage of its competency: a case of rhetoric feflectIng perceived reality. . 1 Empirical work on measuring competencies falls, according to Henderson and Cockburn (1995), into a number 'of types. There is research which explores the impact of competence at aggregate levels
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ofperformance (for example, Hitt & Ireland, 1985; Collis & Montgomery, 1995). There is research which explores the evolution of competence within individual firms (Iansiti & Clark, 1994, Leonard-Barton, 1992)" and empirical studies, such as their own (Henderson & Cockburn, 1995), which attempt to link firm and sector level analyses. Methodologies to identify and measure core competencies are a growth area in the strategic management literature. Yet, despite all the effort and attention, Coyne et al. (1997) writing in The McKinsey Quarte11'Iy (1997:41), noted how elusive core competencies remain: "Few managers we have talked to could claim to have utilised core competence to achieve success in the marketplace, and even fewer to have built a core competence from scratch. Indeed, most were uncertain as to exactly what qualifies a core competence ... it is like a mirage; something that from a distance appears to offer hope ... but nu-ns to sand when approached." Our own experience in working with the concept of core competence supports their view. Competencies disappear all too easily upon close examination. A careful scrutiny of competence claims reveals, all too often, that they are neither firm-specific nor sustainable, and that they convey neither functionality to the customer nor generic qualities to the firm. We feel that at least part of the problem rests with the process and consequences of accessing and exposing tacit knowledge. Tacit knowledge, almost by definition, is difficult to capture. Capture will almost certainly render it explicit. Rendering tacit knowledge explicit creates two potential problems: it either under-represents the knowledge or renders it imitable through description. Together, these have made us feel cautious about an empirical indicator approach to competence identification. To help firms overcome the difficulties which we have described, we developed a methodology to assist them first to identify and, second, to hold an internal dialogue about technologically-based competencies
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or knowledge-based assets. It is based on the Boisot (1994) model of the movement of information within and between organisations, which we now describe.
The C-Space The C-Space (culture-space) is a conceptual framework which focusses on the structuring and flow of information within and between organisations. It consists of two dimensions: codification, the extent to which data can be compressed and expressed on paper - simple text is typically more codified than images and quantitative information is more codified than discourse - and diffusion, the extent to which information is shared by a given population of agents. Agents can be either employees or firms. Boisot's theory describes the conditions under which new knowledge can be structured and shared both within and between firms, and integrates these into a dynamic model of learning. The codification of knowledge involves taking information that human agents carry in their heads and which they find hard to articulate, and structuring it in such a way that its complexity is reduced. This enables it to be incorporated into physical objects or to be described on paper. Once this has occurred, it will develop a life of its own and can diffusequite rapidly and extensively (Fig. 8.1). : Drawing on the, resource-based perspective, a firm's technology can be viewed as information assets embedded in objects, documents and the minds of individuals, and is capable of generating value. The social learning cycle
New knowledge moves around the C-Space in a cyclical fashion as shown in Fig. 8.2. The social learning cycle (SLC) involves moving beyond codification and diffusion to embrace two other types of activities essential to effective learning: absorption and. scanning. Absorption is a move down
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Codified
Structuring Information
Uncodified Undiffused
Diffused
Sharing Information Fig. 8.L The C-space.
Codified Diffusion
Proble Solving
Absorption
Scanning
Fig. 8.2. The social learning curve.
the C-Space in which the codified knowledge picked up in the northeast corner is tested and used in a wide variety of contexts and is gradually internalised by Iearners. Over time, such learning-by-doing (or by using) builds a great deal of tacit knowledge.. Scan1~i1~g is a lTIOVe to the left
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~ .the C-Space in路 which absorbed knowledge gives rise to unique: In~I~hts. The integration of newly absorbed knowledge with an eX1s~g. s.tock of uncodified tacit knowledge is something internal to the .Individual and, hence, highly personal. It is by no means auto~at1c or :n-0uble-free and路 individuals will vary in their ability to achieve ~t ..OccasIonally, these attempts at integration will give rise to unique ms~ghts or patterns. The extraction of unique patterns from generally available data creates new lmowledge in a few individual heads thus moving it from ~ tacit, yet diffused, state on the right of the C:Space to an equally tacit, but now undiffused, state on the left (Williamson, 1975). These patterns are indications of possible opportunities or threats that remain latent in the data .and which have to be teased out through ~ .process of creative problem-solving. If a given pattern ap~ears pronns~~ e~ough to one o~' more 'individuals scanning the available data, It mvites them to invest time and effort in giving it structure and to codify it in some way; a move up the C-Space on the left that initiates another round of the SLC. . If codi~cati~n and diffusion eliminate scarcity rents, absorption and SCanntn~, in contrast, might be considered the rent-generating, entrepreneunal phases ofthe SLC. The process ensures that new knowledge will continuously move up the C-Space and will sooner or later destroy the value of existing knowledge assets, no matter how.well these are thought to be protected by barriers to diffusion. (TYPICal b~riers to diffusion consist of patenting, economies of scale and esotenc codes). Schumpeter (1934) called this a process of creative destruction. Th~ social learning cycle is a purposive activity. It requires resources. Atten~on. to the SLC can define what companies need to do over time to maintain and renew technologies and linkages in the lower left-hand corner of the C-Space, where knowledge is at its most tacit and new ~mowledge initiates problem-solving activities. The SLC illustrates the ~mportance of integrating new and existing knowledge within the firm If knowledge creation is to be relevant to its needs (Iansiti & Clark' 1994). '
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Core competencies and the C-space Effective technology management is about knowing where to locate knowledge assets and the organisational linkages which integrate them together in the C-Space. The working hypothesis that has guided our research is that core competencies, if they exist within a firm, will occupy the lower left-hand region of the C-Space. In this context, competencies c~ be.._q:~Jl,~i~ered as technologies linked by oig;usational ~processes. Sometimes, the links bridge different parts of theorganisattoii- and.~ at other times, different technologies. Like the technologies which they integrate, organisational linkages are subject to the action of the SLC. One moment, they describe a tacit coordination among team members; the next moment, they are rigid organisation-wide rules or codified industry-wide regulations. Moving links up the C-Space gives them stability and facilitates their diffusion. That stability, however, can sometimes hinder. When it acquires the kind of inertia that blocks the future evolution of a competence, it becomes a competence trap which prevents the firm from adapting to new circumstances (Leonard-Barton, 1992). The paradox of value: Creating value in the C-Space A firm's 'effectiveness requires that its learning processes, that is, the particular SLCs it either generates or participates in, add value to its knowledge assets. We take value to reflect the blend ofutility and scarcity embedded in a firm's product offerings and, in particular, in the knowledge base which generates these product offerings (Walrus, 1984; Boisot et al., 1997)., . In the C-Space, the utility of knowledge assets is. a function of their degree of codification. The more an item of knowledge can be formalised, standardised or simplified, the more easily and reliably it can be manipulated and, subsequently, combined with other items of knowledge. The scarcity of knowledge assets, on the other hand, is a function of how close to the origin, along the diffusion dimension,
Are There Any Competencies Out I here? loenmymg...
such assets can be located. The lower the percentage of a given population in possession of a useful and sought-after knowledge item, the scarcer it becomes. By this definition, therefore, maximum value is achieved by knowledge located at point MY in the C-Space in Fig. 8.3 (in this figure, the diffusion dimension is represented by the firms that make up an industry other specifications are, of course, possible). Yet, point MV, because of the high degree of codification it implies, is located in the region in which knowledge reaches its highest degree of diffusibility. In other words, the point is unstable. This leads to a paradox of value: the greater the potential utility achieved by an item of knowledge, the more precarious and unstable the, scarcity that it achieves becomes. More than' anything, else, perhaps, is the paradox of value that serves to demarcate the economic behaviour of firms , with respect to their knmvledge assets, from that relating to their physical assets. Put starkly, an oil field cannot be photocopied; the formula for Coca-Cola can.
Codified
MV
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Uncodified
Undiffused
....
Diffused
Increasing Scarcity Fig. 8.3. The location of maximum value.
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Being a knowledge asset, a core competence, is subject to this paradox of value. Firms have two quite distinct ways of dealing with it which we now explore.
Managing the Paradox of Value In his discussion on adaptive processes, March (1987) distinguishes between exploitative and exploratory learning. Simplifying somewhat, exploitative learning pursues efficiency gains. It manifests itself -in enterprise behaviour, primarily through a concern with things such as costs and prices. It tends to take the object of its learning for granted and aims to acquire a complete and detailed knowledge of it. One example of deliberate exploitation at work is provided by the, experience curve in which product-related learning, whether secured through repetition or scale effects, is pressed into the service of dti:ing down costs (Henderson, 1979). . . Exploratory learning, in contrast, generates new options. At the enterprise level, this consists of identifying, often in a somewhat random and unstructured fashion, what new and value-adding possibilities are consistent with, a given cost and price structure. Exploratory learning takes nothing for granted with respect to the objects of its learning and is more comfortable viewing them as a set of contingent and constructed representations. Thus, for example, Japanese car manufacturers in the 1980s were securing significant competitive advantages for themselves by incorporating, as standard items On their models, features that had hitherto been offered as expensive extras on car models in the west. There' was nothing revolutionary in this: they had simply challenged a distinction between economy and luxury models which had, become tacitly entrenched in the minds of Western automobile manufacturers as part' of the way that the world works (Wcnnack et al., 1991). ' In economic parlance, exploitative learning might be labelled equilibriating since, when applied to economic activity, it codifies and standardises the terms on which market competition tan take place, thus ~owjng them to become visible and accessible to others. In such
Are There Any Competencies Out. There? Identifying...
competition, initial cost and price advantages gradually get competed away through imitation and diffusion of best practice so that, over time, competition converges on an equilibrium price. Exploratory learning, on the other hand, might be labelled disequilibriating since, with an open-ended specification of product or process attributes, it is impossible 路ever to fully codify the terms on which market competition is likely to take place, thus. malting it harder for market players to imitate each other. A firm's initial competitive advantages can therefore, be maintained by the continuous creation of novel, and often tacit, value-adding product or process attributes which are difficult for outsiders to cost and, sometimes; even to price. Although exploitative and exploratory learning will typically work in tandem, Levitt and March (1988), nevertheless, note a strong otganisational .preference for exploitative over exploratory learning. The neo-classical theory of the firm assumes that effective organisational learning is essentially exploitative in nature and leads, over time, to market equilibrium a process we label N-learning~ A Schumpeterian . perspective on the firm, on the other hand,ta1ces-o~ga~~i'satiol1allearning to be both exploratory and disequilibriating, as well as exploitative and equilibriating. It is viewed as a source of discontinuous novelty, as well as of efficiency gains, and under certain circumstances, also as a source of creative destruction. We label this second process S-learning. In the C-Space, N~learning comes to a halt in the north-easfregioiifollowing the diffusion of codified knowledge. S-learning, in contrast, involves moving beyond this region down the space through a complete SLC. N-learners, by focussing on the erosion of scarcity, tend to limit the diffusion of knowledge and 'to hoard it. S-learners, believing that diffusion can help them to renew their knowledge, are often quite happy to share it.
Applying the C-Space to the Exploration of Core Competencies: Our Methodology The C-Space is a conceptual model.v-Onr recent work has explored whether, and how, it can be operationalised to assist firms in discussions
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about their core competencies. In particular, we wonde~路ed. whether ~t could be used to assist them in the recognition of significant tacit knowledge in such a way that this knowledge w~ul~ not be ma~e m?re vulnerable to diffusion to competitors. Our objectives and o~ claims are modest, but we believe that the methodology we have devised can . . assist firms in this way. The methodology is workshop-based. The objectives' ofth~ workshops are twofold: first, to enable firms to map their technologies and the key linkages between them onto the C-~pace;and second, ~o act ~s an elicitation device to facilitate a discussion about the meanmg ill terms of core competencies and knowledge resources of the data represented on this map. .. . _ There are a number of conditions which need to ?e met. for a workshop to succeed. First, all its participants mu~t be "literate". ill the technology(ies) or "know-how" which are the subject of the workshop. Second', the participants must represent all the aspect~ of .the tec hr101ogy(ies) res or""know-how". Third , there must be sufficient TIme to complete all the stages. . '. . _ Participants need to be "literate" in tenus of th~ techn~logy111 order to be able to participate in the mapping exercises which p~ace the technologies and linkages in the C-Space. As ,ve shall see, divergent views about technology and linkage placement may repr~sent valuable information. Hence it is important to ensure that such dive~~ences are .not simply a reflection of ignorance about the technologies. Participants need to represent all aspects of a technol~~ for ~e same reason, It is almost inevitable that the workshop p.artlclpmlts will have different levels of experience and expertise about ~ferent as~ects of a technology. These differences need to be reflected In tl~e lTI1X of participants who attend the workshop. The workshops consist of five stages: (i) Pre-workshop preparation. (ii) Workshop introduction. (iii) Identifying key Iinkages.
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(iv) Mapping technologies and linkages. (v) Discussion and interpretation. To prepare for a workshop, we have typically worked with one or two internal champions. The champions undertake the pre-workshop preparation.
Stage one: Pre-workshop preparation The following tasks need to be completed in this stage: (i) (ii) (iii) (iv)
Selecting the level of technology aggregation. Breaking the technologydown into relevant constituent elements. Establishing the mapping orientation. Selecting the workshop participants.
The level oftechnology aggrega.tion Technologies can be considered at different levels of aggregation. For example, a telephone, like the one sitting on your desk, could be considered as one technological element in a broader communication technology, of which other elements might include switches at an exchange. Or the telephone can be considered as the technology and be broken down into its constituent technological elements. The first step in a workshop is to decide what level of aggregation is appropriate, Core competencies, by definition, tend not to relate to disaggregated technologies. A clear, and shared, understanding of both the technology and its level of aggregation is critical. Our experience suggests that it is more relevant to consider technologies at a level where they constitute a process or a system.
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Typically, each element consists, in turn, of a number of technologies. For example, the tec1mology to make a fibre might consist of the following elements: (i) Pulp
(ii) Mix (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)
Dissolve Filter Spin Wash pry Fibre Purify Evaporate
We have found that, once the level of technology aggregation has been decided, those working with the technology within the firm do . not find it either problematic or difficult to. break the technology down into its constituent elements. It is important, however, that there is a consensus on the identity of these elements (see stage two).
Identifying the nttapping orientation The third task is to identify the mapping orientation. Is the workshop to consider technologies and the linkages between them at this moment in time, at a specified previous moment, or"as they might become} Staff from different. functions in a firm might have different perspectives on technologies and linkages. Is the workshop to represent a particular view, for example, research or marketing, or ,a cross-section of opinion? Failure to clarify these issues can subsequently give rise to unresolvable ambiguities. ,
Breaking the technology down. into its constituent elements Having established the level of technology aggregation, the 'next step is to break the technology into a number of constituent elements. Take, for example, a process. The process will consist of a number of elements.
Selectingthe workshop pa1"'ticipa1ttts Workshop participants, as we have seen, need to be technologically . literate and to represent all the elements of the technology(ies) or
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"know-how" which is/are to form the focus of the workshop. Since a key part of our claim for the C-Space focusses on its role as an elicitation device, there needs to be a sufficient number of participants to hold a discussion. We feel that there is probably a lower limit of about 12 participants for an effective workshop. Traditional problems of large numbers making for difficult discussions can' be avoided by the use of groupware technologies. These enable small groups to hold simultaneous dialogues within a large group. Thus, they remove the problems of an upper limit on workshop size. Stage two: Workshop introduction The second stage consists of introductions to: (i) The C-Space . (ii) The software, if a groupware-based facilitation system is to be used. It is our experience that the majority of workshop. participants find the C-Space model conceptually attractive. fu order to participate fully in the discussion, participants need to be conversant with the C-Space and its core concepts. 1'0 do this, a fairly lengthy and detailed account of the C-Space, such as that described in this article, is required.. If Groupware is being used, participants need to familiarise themselves with the software before the workshop exercises begin.
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Stage three: Identifying key linkages The third stage is to identify. the linkages between the elements of the technology. To do this: (i) A consensus must be reached on the technology elements which were identified prior to the workshop. (ii) The key linkages between these elements need to be identified and agreed upon.
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First, a workshop champion needs to describe and explain the identification and selection of the technology elements. Workshop participants can then decide if they wish to modify the list in any way. The next step is to identify the linkages between these technologies. Linkages refer to the. relationships between technological elements. Some are significant while others are more distant. In C-Space terms, they are important because a competence may rest as much on how technological elements are related as in the technologies themselves. Linkages do not refer to the sequential relations between technological elements. Rather, they refer to the impact of one element on another. The balance between different feedstocks, for example, can affect the properties of a product. This is not a sequential relationship, but it is a linkage in our terms. Linkages may be mono-directional or involve feedback. We access the significance of linkages by asking the workshop participants to identify and rank those which they believe to be most significant. One way to do this is to evaluate the impact of the linkage on performance. A linkage which has a critical impact on performance is more significant than one which has a more peripheral impact. This can be undertaken on .an individual or group basis, depending on the size of the workshop. We have typically asked participants to complete a matrix where they can indicate of the impact of the technology elements on each other. When the first .round of responses are. collated, a list of 10 to 12 of the most significant linkages can then be drawn up using some .kind of consensus building. Numbers larger than 10 to 12 are only a problem in the sense that they extend the complexity of the mapping stage which follows. Stage four: Mapping technologies and linkages As with the other stages in the-workshop, the four the stage involves a number of elements:
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An example of a diffusion scale to be used at the industry level
(i) Locating the technologies and linkages in the C-Space. (ii) Reviewing the results. (iii) Agreeing upon a pattern.
As a first step, participants are asked to place each of the technologies and linkages identified in stage one and three onto the C-Space. This, they do so by placing each of them at a point on the codification and diffusion scales. The relevant population for diffusion needs to be defined: rather different data are generated when the diffusion population is the firm, as opposed to the industry, for example. For discussions about competence, it is often helpful to explore how widely knowledge about technologies and linkages are shared within the firm and within the industry. Comparing firm and industry level diffusion patterns can help firms to recognise that, while a particular technology may not be widely diffused within the firm, it is widely diffused among other firms in the industry. In this way, participants avoid the trap of believing that because something is new to them, it is also new to their competitors. We have explored a number of different ways to manage the scaling of technologies and linkages onto the codification and diffusion scales. In the end, we have found it most helpful to provide participants with a framework, such as the following, to guide them. The scales need to be "tailored" to the context in which they will be used. An example of a codification scale used in a process industry is as follows: Codified Can be totally automated Can be partially automated Can be systematically described Can be described and put down on paper Can be shown and described verbally Can be shown Inside someone's heard Uncodified
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Known by all firms in all- industries Known by many firms in all industries Known by many firms in many industries Known by many'firms in a few industries Known 'by a handful of firms in a few industries . Known by only a handful of firms in one industry Known only by one firm in one industry Undiffused Such scales may appear rather inexact but, for this purpose, they are exact enough. The C-Space is an heuristic and not an indicator or a measurement device. Having completed the scaling on an individual basis, the next step is to feedback the results to participants in order to allow them to discuss differences. Quite often, differences reflect nothing more than different interpretations of the scales, and it is important that these be resolved so that more significant differences can be highlighted. Groupware technology is very helpful in this context. Not only does it facilitate the rapid dissemination of the data, but the format of small groups 'clustered around a terminal lends itself easily to the discussion of differences. With large workshops, a further variant is to ask that the scaling itself be done in small groups. On some occasions, however, the divergences between the scores of different individuals may require additional investigation (on occasion, beyond the workshop and involving additional resources), It is by no means uncommon to undertake some rescaling on an agreed upon interpretation. Once this is completed, and agreed upon, the workshop participants have, before them, a series of C-Spaces into which the key technologies and key linkages have been, mapped. Typically, there will be four: key linkages diffused at the firm level; key linkages diffused at the industry
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level; technologies diffused at the firm level; and technologies diffused at the industry leveL These form the input for the final, and most critical, stage of the workshop: interpretation.
Stage five: Interpretation
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This is the core of the workshop actrvity, Participants now have 'maps' of the technologies and the key linkages in the C-Space, and can discuss what these data might signify in terms of core competence identification. To illustrate what these discussions can generate, we will briefly review the outcome of the use of the C-Space in three different contexts. Each of our examples is drawn from an international company operating in a competitive environment. Company A was involved in a technology transfer situation with an overseas partner based in the host nation. Company B was bringing a new technologically-based product to the market. Company C was concerned with developing technologies to address particular operational problems. Collectively, the examples represent different issues in the management of technologybased knowledge assets. The first example is the simplest. Company A faced a situation where its overseas partner was particularly anxious to gain access to a particular element of A's technology. A, however, believed, that tins technology constituted a core competence. Mapping A's technologies and linkages in the C-Space (Fig. 8.4) showed A, rather to its surprise, that the technology it was trying to protect was widely diffused within tile industry. So, if its partner ,\vanted access to this technology and A' refused to share it, it could easily acquire access through A's competitors. A transferred the technology. Company B is in the chemicals sector. It presented itself to us as innovation, a company which had demonstrated a consistent pattern in relation to a type of product, over a long period of time. Since it had just brought a novel variant of the product to market, it believed that it had a core competence in relation to product development.
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Diffusion Fig. 8.4. Company A; Location of the key technology.
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Diffusion Fig. 8.5. Company B: Pattern of technologies of the new product.
The history of product group, in relation to Company B, suggested the importance - in C-Space terms - of scanning and tacit knowledge, and of a balance between exploitation and exploration. Company B took this to be evidence of a possible competence.
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The workshop focussed on the new product. Diffusion was examined in terms of B's competitors, that is, at the industry level. The active workshop participants were staff with a good knowledge of the technology of the product and the history of its development within B. The workshop produced a pattern of technologies and linkages in the C-Space as shown in Fig. 8.5. This pattern led to a number of observations. First, it is not immediately obvious that B has a core competence in product development. If it did, we would have expected to see some technologies and linkages located in the lower left" quadrant of the C-Space. And, while challenged by some, the majority of the workshop participants. shared our view. Second, the pattern shown by B is typically that of the N-learner we described earlier, or - as we have described them elsewhere - a technology 'hoarder (Boisot, Griffiths and Mole, 1997). In common with all other actors in its sector B exploits technology. And in B's case it was seeking to exploit its new product by holding it in the region of maximum value via patents. The workshop suggested that the novel aspects of the manufacture of the new product were in the upper left quadrant of the C-Space, whilst longer established, more industry standard technologies were represented in the upper right quadrant. Third, when - as we have explained earlier, it is a case of when B's new product technology does diffuse to its competitors, it is not obvious that B will be in a position to introduce its successor. For B, these observations raised a number' of questions and issues in relation to the development and use of its knowledge assets. Some examples of these questions were as follows. Company B operates in a sector which requires large capital investment in manufacturing plant in order to launch a new product. As路 such, B is involved in a tension between a rapid -codification to permit exploitation and a less rapid codification to permit innovation. The workshop data suggested that B was placing more emphasis on the former than the latter. Might this prove to be short-sighted in the long term?
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Having committed itself to the new product, B has invested a large amount of capital in the construction of the plant and the equipment to manufacture it - resources to "hold" it in the region of maximum value and marketing and sales resources. In short, B has made a huge commitment to its new product. Novelty, in the form of radical new products, driving out of the lower left-hand quadrant of the C-Space, is a potential threat to all this investment, Might B, then, no longer be interested in new' knowledge assets? Company C is a major petrochemical company. The focus of the workshop was a series of technologies to address a particular operational problem. tn contrast to Company B, Company C believed that technology was subject to such rapid diffusion in their sector that there was no longer any point in trying to either regard or use it as a source of competitive advantage. Instead, they were seeking advantage through what they believed to be an organisationallybased competence relating to their ability to manage and use technology. They believed that they could utilise technological knowledge faster than their competitors and stated, explicitly, in internal documents, that they were developing a technology strategy based on the use,. rather'than the creation, of technology. Figure 8.6 indicates the pattern of technologies and linkages in Company C. (Again, diffusion was considered at the industry level.) The pattern shown by Company C is more typical of the S-learner (or technology sharer) which we described earlier. Company C engages in exploratory learning. It actively searches for discontinuities in relation to technology and is open to' processes of rapid and continuous technological change. \. By reflecting on this pattern, C arrived at a number of conclusions. First; it became clear that technology generation remained important to them even though they no longer sought to exploit their knowledge assets by moving them through the region of maximum value. Second, they recognised that they continued to seek advantage in the way that they used technologies. Internal processes - many of them of an informal, uncodified nature - were important in this as they
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subsequently brings back in and uses). C's creativity is actually driving its SLC. Hence C was left considering whether its self-image should but not a developermore properly be, that of a creator and user of technology, With all that'that implied (Griffths, Boisot and Mole, 1998).
Some Lessons
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Fig. 8.6. Company C: Pattern of technologies.
enabled fast adoption and use which is critical to generating this advantage. Third, and related to this, they recognised the value of the tacit knowledge held in their employees' heads. As with Company B, the workshop left C With a number of questions. Having highlighted the importance of the informal processes which operate in the lower part of the C-Space, C was left wondering how best to support them. Interestingly, it also left it wondering whether, in relation to the technologies in the extreme bottom left quadrant of the C-Space, it might, after all, Wish to move them up towards the region of maximum value. More importantly, too, the workshop challenged their self-image. Prior to the workshop, they had described their core competence in terms of internal processes which facilitated fast learning: they would seek and achieve advantage by bringing in technology developed elsewhere and to use it faster and more effectively than their competitors. . The workshop data suggested, however, that this was only half the picture. The other half is C's continued creation of technology, which it then pushes out into the market to be developed (and which C
Taken together, these examples suggest a number of lessons. We believe it is no accident that it is much easier to discuss the identification of <:=ore competencies in the abstract than it is to identify them empirically. Nor do we find it some kind :of intellectual game that so many terms are used to try to capture the key concepts of the resource-based view of competition. Nor is it surprising that, while firms can articulate what they believe their core competencies to be at a rather general level- such as "product development" in Company B for example - they experience much greater difficulty in articulating what the competence might constitute in' anymore detailed and strategically meaningful way. Yet, Without some deeper insight, firms will face problems in the effective management of these crucial knowledge assets. Part of the difficulty, we have come to realise, relates to the' capture of tacit knowledge. 'Perhaps it is not actually desirable for a firm to be able to articulate its tacit knowledge. .Articulation involves description which, in turn, facilitates diffusion. But a crucial characteristic of a competence is its tacit nature and the element of learning which this represents. Company C clearly saw its winning advantage in the way it could use and absorb technologies - a the details of which they found hard to lower C-space activity articulate. The use of the C-Space meant that they did not actually have to articulate these key processes: the C-Space facilitated both recognition and recognition without codification. It is this tacit element of competence which we believe provides illimitability and sustainability. We are not alone, of course, in pointing to the significance of tacit knowledge in the management of knowledge assets. Nonaka and
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Takeuchi (1995), notably, have a model of knowledge creation which shares Boisot's recognition of the role and significance of tacit knowledge, as well as the type of organisational structures which might most aPBropriately support its development and management. Perhaps the holy grail of core competence identification is" an organisational litmus paper to test for their presenc;:e. In character, with its status as a holy grail, this litmus test has proven elusive. Our brief review of the extensive literature on core competencies indicated both the diversity of terms and concepts "used to ,access core competence and some different approaches in their measurement. Our review left us puzzled over the difficulties experienced in the definition of such a central concept in a major strategic approach. The C-Space has enabled us to resolve a little of this puzzle. By providing a framework" through which the relative significance of tacit knowledge can be identified without having to render the knowledge explicit, the C-Space can facilitate the management of knowledge assets. .As such, we offer it as a heuristic - as an elicitation" device - which can be added to the strategic analyst's toolkit to identify and manage those aspects of knowledge-based resources whidh might constitute a core competence.